Government beaten in pub rebellion

More than 40 Tory and Liberal Democrat MPs rebelled today as the Government went down to its first legislative defeat over proposals to allow pub tenants tied to big companies to demand a market rent only (MRO) agreement from their parent company.

More than 40 Tory and Liberal Democrat MPs rebelled today as the Government went down to its first legislative defeat over proposals to allow pub tenants tied to big companies to demand a market rent only (MRO) agreement from their parent company.

A broadly-backed amendment to the Small Business, Enterprise and Employment Bill, signed by MPs from all three main parties, was approved by 284 votes to 259, majority 25. The Government's majority is normally around 60.

The majority is bigger than was announced in the Commons after division list analysis revealed an error in the announced results.

There were 17 Tory rebels and 24 from the Liberal Democrat wing of the coalition, while Tory Neil Parish (Tiverton and Homerton) voted in both lobbies. Several ministers, including Home Secretary Theresa May and Culture Secretary Sajid Javid, missed the vote.

Liberal Democrat Greg Mulholland (Leeds North West), who proposed the amendment, said his plans had been broadly backed in a consultation run by the Department for Business, Innovation and Skills (BIS).

Loud cheers from the Labour benches greeted the result while shouts of "resign" were also heard. A shout of "well done, Chief Whip" was aimed at Conservative Michael Gove.

Senior Liberal Democrat Tim Farron, who voted against the Government, patted a smiling Mr Mulholland on the back.

Mr Mulholland, who is chairman of the Save The Pub campaign, stressed the Government's proposals to let tied pubs move to a market rent model in two years would mean "business as usual".

Putting forward his amendment, the Lib Dem MP insisted that the plans do not meet the Government's own key principles of fairness and tied landlords should be no worse off than those free of a tie.

He pointed out that Punch Taverns, one of the main companies fighting the reforms, had told prospective investors that they would not adversely affect business.

Mr Mulholland said: "At the moment the Bill and the code doesn't deliver what the Government has set out courageously to deliver.

"Don't take my word for it - take the word actually of one of the two companies who is particularly vociferously lobbying against it, Punch Taverns.

"In their own prospectus for potential investors, dated October 6 2014, they say 'Punch does not believe that the reforms currently proposed would materially adversely affect the Punch group'.

"In other words, it would be business as usual, they would continue to charge excessive beer prices, often 70% more than actually MPs could get from the brewery as well as entirely unregulated rents."

Mr Mulholland stressed that his market rent only plans would come in gradually over five years and only be triggered at key points in the cycle of a lease or tenancy, such as rent reviews, lease renewals or on the sale of the title of a property, or if there was a substantial change in prices or change in circumstances such as a cheaper pub opening next door.

This period would then be followed by two potential periods of negotiation between the pub and the larger owning company with an independent surveyor to adjudicate over any differences in opinion.

Mr Mulholland said: "This is a reasonable gradual process that will simply bring back market forces into a sector that frankly has become grotesquely anti-competitive. It's closed to many smaller breweries and it is not working for publicans, it's not working for those communities losing pubs, and actually frankly it's not working for those large companies themselves."

During the debate, Business Minister Jo Swinson said the Government wanted the big companies to first come under a new Pubs Code, which would give landlords a "parallel rent assessment" - essentially comparing their current deal with a tie-free option.

Tied pubs exclusively buy alcohol products from the parent company in return for reduced rent on the premises and other benefits but there are widespread concerns and complaints about abuse of the practice by big firms.

She said there were concerns that moving directly to an MRO option could create "unintended consequences" but pledged the Government would amend the Bill further when it reaches the House of Lords.

Speaking in a report stage debate, she said: "We do recognise there are many MPs who worry the pub companies do need the real threat of tenants going free of tie before they will offer their tenants a good tied deal.

"In response to that, I can commit the Government will bring forward amendments in the other place to respond to this... we plan to add a power into the Bill to introduce a market-only option after two years if a review concludes the current measures we set out in the Bill haven't delivered sufficiently for tied tenants."

Turning to other elements of the Bill, Labour's Debbie Abrahams spoke in favour of a series of amendments relating to the issue of late payments for small businesses, arguing she did not think the Government's measures were strong enough.

The MP for Oldham East and Saddleworth said: "For them this is not just an inconvenience of spending an estimated 158 million hours chasing payment, but with vital cash flow stemmed it's often affecting their very survival, their jobs, their livelihoods. In 2012, it was estimated that 124,000 small businesses were put out of business directly as a result of late payments."

Late payment she said was a cultural issue and large companies paid small companies late "because they can".

She said: "They have the power and the small companies don't. We need to change these attitudes, we need to see late payment is as unethical as tax evasion."

Labour's Bill Esterson (Sefton Central) said it was important to have a level playing field on payment of suppliers by larger organisations.

He said: "It's the human and social cost of late payment on smaller businesses and the people who run them and the people who work in them that's incredibly important.

"It's incredibly short sighted of larger businesses to disrupt their own supply chains by delaying."

Labour's Gordon Banks (Ochil and South Perthshire) said he supported calls for the Government to conduct a review into how the payment publishing regime could be adapted to ensure that late payments were accompanied with an automatic compensation payment and the onus moved away from the small customer waiting to be paid.

He said: "Any small business owner will know, late payment is often the difference between continued trading and business failure."

Conservative Ben Gummer (Ipswich) told MPs how he used to be "genuinely terrified" by delays in payments from big companies and the public sector, as he backed the Government's approach.

He said: "I have to say, in running a business which was turning over only at its start a few hundred thousand pounds, the pain that was caused to my business when on paper every week I was given the results - which was showing almost invariably we were trading at a profit and yet that was not reflected in the bank account because of the poor payment terms by large companies and also, frankly, by large parts of the public sector - is one I will never, ever forget.

"I know getting towards the end of the month being genuinely terrified that I would not have enough money to be able to pay the people who are working for me because I had not been paid by big companies is a very frightening and very unnerving and very frustrating experience.

"The amount of energy it takes out of small business people when they should be deploying that passion and that energy in building a business and employing people and increasing wealth and prosperity is something that is very destructive to business growth."

Business Minister Matthew Hancock said: "The question (about late payment) is what to do about it.

"I think it is important to make sure we take steps that will have a positive impact and we think about the unintended consequences because if we introduce to English law a requirement a contract takes a specific form then we remove a freedom of contract which has served this country incredibly well over a long period of time.

"I will bow to nobody in my passion for sorting out late payment because the family business I grew up in very nearly went under thanks to late payment.

"Already in the Bill there are steps to improve transparency and improve prompt payment in the public sector. In the BIS department, we pay 95% of undisputed invoices within five days and 99% within 30 days and this sort of excellent performance needs to be rolled out much wider in the public sector to change the culture, and then we need transparency."

Ms Abrahams withdrew her amendment, before the Government defeated a Labour front bench proposal 295 to 229, majority 66.

Report stage debate will be continued at a later date, before a third reading debate. The Bill will then be sent to the House of Lords where peers will scrutinise it further.